Inflation Surges to 4.2% in May, the Highest in Three Years, as Iran Energy Shock Hits Pump

U.S. inflation accelerated to its fastest pace in more than three years in May, the Labor Department reported Wednesday, as an energy shock unleashed by the conflict with Iran pushed gasoline prices sharply higher and squeezed household budgets across the country.

The Consumer Price Index rose a seasonally adjusted 0.5% for the month, lifting the annual inflation rate to 4.2% from 3.8% in April, the Bureau of Labor Statistics said. It was the highest reading since April 2023 and marked a steep climb from the 2.4% pace recorded as recently as January. Core inflation, which strips out volatile food and energy costs, ticked up to 2.9% from a year earlier.

Energy did most of the damage. Prices at the pump jumped 40.5% from a year ago, and energy costs overall accounted for more than 60% of the monthly increase in the index, the government said. The surge traces directly to the closure of the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world's oil passes, after fighting between Israel, the United States and Iran disrupted shipping and rattled global markets. President Donald Trump has said the strait would reopen "to all" once a war-ending agreement with Tehran is signed.

The pain extended well beyond the gas station. Food prices at home rose 2.7% over the year, with tomatoes up 32%, lettuce up 25% and coffee climbing 17.5%. "Consumers are paying more for essentials, and they can feel powerless to mitigate this pain," said Elizabeth Renter, senior economist at NerdWallet. Shelter costs, a key input the Federal Reserve watches closely, rose a more modest 0.3%, half the gain of the prior month.

Economists were split on whether May represented a peak. "With gas prices down sharply so far in June, May could mark the peak for headline CPI," said Nancy Vanden Houten of Oxford Economics. Others warned the Fed could be boxed in. "The Fed's next move may need to be a hike, and not a cut," said Chris Zaccarelli of Northlight Asset Management. Gregory Daco of EY-Parthenon noted that some categories suggested "the bulk of tariff-related passthrough appears to be behind us."

The report lands days before the Federal Reserve's policy meeting on June 17, where markets put the odds of the central bank holding rates steady at roughly 96%. With prices accelerating and the labor market still resilient, policymakers face an uncomfortable choice between defending against entrenched inflation and cushioning an economy buffeted by the energy crisis. For millions of Americans already stretching paychecks to cover groceries and fuel, the data confirmed what they have felt for months at the register.